Sample Business Studies Paper on Reporting Cash on the Balance Sheet

Reporting Cash on the Balance Sheet

On the balance sheet, cash constitutes currency, undeposited checks, and bank accounts. Keeping some cash accessible can be critical for firms to cushion themselves in case of unseen occurrences. On the balance sheet, cash is recorded in the part of the current assets. Recording the cash balances and frequent monitoring is an effective way of assessing the health and solvency of a business. Investors and lenders are more concerned with a firm’s cash flow since they are markers of a business’s ability to meet liabilities and pay dividends.

Recording cash on the balance sheet is vital for evaluating the health of an enterprise. The cash levels recorded indicate a firm’s ability to settle its debts. A growing cash balance over a given period may suggest increased sales or greater productivity (Estevez, 2021). In addition, a comparison of the cash balances against cash levels of the business helps to assess the relative health of the business. On the other hand, lower cash levels alarm proponents of likely insolvency, lower sales, or decreased productivity.

For accounting sake, cash is always recorded under current assets. Therefore, it increases the debit score and reduces the credit side. Typically, cash appears at the first line of current assets in the balance sheet since items are arranged in sequence of liquidity (Makoujy, 2010). Those assets that can be liquidated into cash within a year can be listed as cash, under cash equivalents.  Notably, cash is the most important element in the current assets sector, which also comprises checks and bank accounts.  Cash equivalents provide businesses with very secure assets that can liquified readily. However, credit collateral and inventory cannot be listed as current assets under a cash or cash equivalents.

 

 

References

Estevez, E. (2021). Reading the balance sheet. Retrieved from https://www.investopedia.com/articles/04/031004.asp

Makoujy, R. J. (2010). How to read a balance sheet. McGraw Hill.